What to Watch For in IBM’s Q3

International Business Machines Corp. (NYSE: IBM) is scheduled to release its third-quarter financial results on Tuesday after the markets close. The Thomson Reuters consensus estimates are $3.40 in EPS and $19.1 billion in revenue. In the same period of last year, IBM said it had $3.26 in EPS and $19.15 billion in revenue.

UBS has raised its rating on Big Blue to Buy from Neutral and its price target to $180 from $160. This implies upside of almost 21% from the $148.91 prior closing price, and total return investors would count IBM’s 4.2% dividend yield in their analysis to get a total return upside of about 25%.

What matters here is that analysts on Wall Street generally assign 8% to 10% in implied upside on Dow Jones industrial average and most S&P 500 stocks at this stage in the bull market and with the market near all-time highs. If UBS is correct, IBM has more than twice of the upside of most analyst upgrades on these large-cap companies.

UBS analyst John Roy is now positive after a deep dive into IBM Analytics, Cloud and Services out in 2020, but the call does warn of very little chance of revenue growth in 2019. Several key metrics were cited in the upgrade:

Artificial intelligence (AI) and machine learning could add $400 million to 2019 sales.

Watson hype cycle is expected to bottom this year.

Margins actually could improve due to better service unit performance.

And the 4.4% dividend yield should act to create a floor for the stock.

Excluding Tuesday’s move, IBM has underperformed the broad markets, with the stock down 4% in the past 52 weeks. In just 2018 alone, the stock is down 8%.

A few other analysts weighed in ahead of the earnings report:

Moffett Nathanson has a Sell rating and a $150 price target.

Wells Fargo has a Market Perform rating.

Wedbush has a Neutral rating with a $185 price target.

Deutsche Bank has a Hold rating with a $150 target price.

Merrill Lynch has a Buy rating with a $200 price target.

Societe General has a Sell rating and a $149 price target.

Shares of IBM were last seen up about 2% on Tuesday at $144.46, with a consensus analyst price target of $163.30 and a 52-week trading range of $137.45 to $171.13.